Terrorist have been known to strike at the time when economy is at a brink of collapse. At the time of WTC attack, US economy was on a brink of collapse and they did strike at the financial capital heart, the world trade center. Then US started the war against terrorism and sometime later Iraq war. Both of these wars also played an important role in getting the economy running on the foot again. War activities creates jobs, creates demand for metals, commodities. Creates jobs in mining, weapon factories, army. It kind of starts running the rusted economic engine again. Once the economy starts running, it creates lot more other jobs, to run the engine even better.
Attacks in Mumbai last week were also of similar nature, attacking some of the main business hubs. Casino Royale, the 007 bond movie, talked about linkages between terrorist organizations and the financial markets, but those were mostly related to money laundering and financing such operations.
One solution, i proposed of getting out of this crisis is growth of China and India.
The other solution is a war of a massive scale. Which makes the engine run again. I cannot think of coutries which will take the opposite stances. But, a war against terrorism is a pretty good idea to run the economic engine again.
Ofcourse, i firmly believer that bailouts will not work. You need to address the problem by running the economic engine, not by bailing out one company after another.
I wish, that these terrorist attack U.S. on a massive scale. U.S starts its war against terrorism.
India also joins hand in this war. The economic engine run again. Starting with security watchman, the economy starts creating more and more jobs. These jobs further feed as lubricant to the economic engine and everything run again in the rhytm.
Sunday, November 30, 2008
Crude at $35
We will soon be seeing crude oil at $35 (this is slightly based on technical analysis and mostly on fundamentals). Petrol prices in India will be below Rs. 40, by July'09.
I am still not sure, how long crude will stay at such low levels, but it will definitely be below 70$ for next 3-4 years.
Have a great driving season :)
I am still not sure, how long crude will stay at such low levels, but it will definitely be below 70$ for next 3-4 years.
Have a great driving season :)
Thursday, November 20, 2008
Recession or Depression
Last two posts were slightly off the topic. Lets come back to the topic. What is happening with US and what is happening to India.
People told me that i am talking about the worst case scenario. US cannot fall into a deep recession for a long period of time. India cannot grow beyond a point.
But, I am talking about the best case scenario. Let me tell you, how will the worst case scenario look like.
Airlines companies loose money because of less travelers. They cut 5000 jobs.
Bear Stearns Fails. 5000 people loose jobs.
Freddie Mac fails. Another 5000.
Fannie Fails. Another 5000.
Lehman fails. Another 5000.
Citigroup cuts 50000 jobs.
People stop buying cars.
GM fails. Another 3,00,000 people loose jobs.
They default on house loan, credit card loans, since whole US never thought about savings.
Citigroup fails and get a government bailout. But 1,00,000 people loose jobs.
These people now stay at their home and take care of kids. So 2,00,000 nannies and baby-care companies loose jobs.
These people cut down on airlines, perfumes, going shopping, they just fullfill their bare necessities. Gucci fires people. Mercedes feels the heat in Germany. Boeing and Airbus fire people.
People travel less, so airlines companies fire some 50,000 people.
People travel even less, so crude oil falls. Some gulf nations start firing people.
Gulf nations stop spending on their useless infrastructure projects (like making 1km long buildings and 20 lane roads for a population of 50 lakhs)
Gulf fires some 5,00,000 construction workers from India, Pakistan and Bangladesh.
Construction activity slows down, steel manufactures fire people.
Steel goes down, Iron ore diggers fire people.
People start losing jobs. Since, they are losing jobs they spend less. So, companies which are dependent on those spending stop being profitable, so they also fire people. Once, this negative spiral of job-looses continues, nobody can stop it. Government will be out of money to give unemployment benefits. Ofcourse, it can print money and give but that money just leads to inflationary pressures.
Things end up with a terrible depression with assets prices losing more than 80% of their values.
Lot of people commit suicides, some burn down their houses. The black,white,Chinese, Indians, Japs, brown, yellow all communities start over each other leading to massive riots and fucking up of the whole economy.
The worst case looks like above. Ofcourse, i am talking about the best case and it looks like this.
Fed takes interest rate to zero or negative 0.5. US faces deflation for next 15-20 years, like Japan did. US changes its focus from a domestic consumption economy to export oriented economy.
Dollars adjusts itself, to make the new-born US economy function well. All sorts of useless import, including import of cheap labour on the name of outsourcing to US stops. US manufactures textile, foods and toys for itself rather than importing from China. These new sectors create new jobs for people from banking, auto and other dysfunctional, overgrown industries. All non-US citizens start flowing back to their own countries and contribute to their own economy, because they will be the first ones to get fired.
China allows its currency to appreciate at a faster rate, and stops exporting to the world and gets new industries to serve their own internal economy. Either one or both of India or China, replace US to become the next domestic consumption story. World does not face a depression. China and India's growth counterbalance US degrowth.
I will not talk about Europe, because they are in biggest problems. Europe has lived in too much peace, now is the time to work hard.
People told me that i am talking about the worst case scenario. US cannot fall into a deep recession for a long period of time. India cannot grow beyond a point.
But, I am talking about the best case scenario. Let me tell you, how will the worst case scenario look like.
Airlines companies loose money because of less travelers. They cut 5000 jobs.
Bear Stearns Fails. 5000 people loose jobs.
Freddie Mac fails. Another 5000.
Fannie Fails. Another 5000.
Lehman fails. Another 5000.
Citigroup cuts 50000 jobs.
People stop buying cars.
GM fails. Another 3,00,000 people loose jobs.
They default on house loan, credit card loans, since whole US never thought about savings.
Citigroup fails and get a government bailout. But 1,00,000 people loose jobs.
These people now stay at their home and take care of kids. So 2,00,000 nannies and baby-care companies loose jobs.
These people cut down on airlines, perfumes, going shopping, they just fullfill their bare necessities. Gucci fires people. Mercedes feels the heat in Germany. Boeing and Airbus fire people.
People travel less, so airlines companies fire some 50,000 people.
People travel even less, so crude oil falls. Some gulf nations start firing people.
Gulf nations stop spending on their useless infrastructure projects (like making 1km long buildings and 20 lane roads for a population of 50 lakhs)
Gulf fires some 5,00,000 construction workers from India, Pakistan and Bangladesh.
Construction activity slows down, steel manufactures fire people.
Steel goes down, Iron ore diggers fire people.
People start losing jobs. Since, they are losing jobs they spend less. So, companies which are dependent on those spending stop being profitable, so they also fire people. Once, this negative spiral of job-looses continues, nobody can stop it. Government will be out of money to give unemployment benefits. Ofcourse, it can print money and give but that money just leads to inflationary pressures.
Things end up with a terrible depression with assets prices losing more than 80% of their values.
Lot of people commit suicides, some burn down their houses. The black,white,Chinese, Indians, Japs, brown, yellow all communities start over each other leading to massive riots and fucking up of the whole economy.
The worst case looks like above. Ofcourse, i am talking about the best case and it looks like this.
Fed takes interest rate to zero or negative 0.5. US faces deflation for next 15-20 years, like Japan did. US changes its focus from a domestic consumption economy to export oriented economy.
Dollars adjusts itself, to make the new-born US economy function well. All sorts of useless import, including import of cheap labour on the name of outsourcing to US stops. US manufactures textile, foods and toys for itself rather than importing from China. These new sectors create new jobs for people from banking, auto and other dysfunctional, overgrown industries. All non-US citizens start flowing back to their own countries and contribute to their own economy, because they will be the first ones to get fired.
China allows its currency to appreciate at a faster rate, and stops exporting to the world and gets new industries to serve their own internal economy. Either one or both of India or China, replace US to become the next domestic consumption story. World does not face a depression. China and India's growth counterbalance US degrowth.
I will not talk about Europe, because they are in biggest problems. Europe has lived in too much peace, now is the time to work hard.
Saturday, November 8, 2008
Starting your own enterprise
Starting your own enterprise is also like buying stock of a company. The only difference is here you buy 100% of it. I have seen lot of IIT/IIM startups, most of them unsuccessful, which never made it to any newspaper article. I always made my point to also learn from the losers, they know better about businesses than the winners. There are thousand wrong things which you could do, but only one right thing. The winner knows only about that one right thing, losers know at least about 20 wrong things.
Here are some points for you to learn, when you think about startups.
1. Never be where majority is.
If everybody is doing something, its not a great thing to do. When you follow majority you will always loose, or you have to put too much fight to win. The competition will be intense, since you have been in a cushy job, you have least animal instincts to survive. The person you are competing with, does not have anything else to do for his survival, he will be a savage person.
Always think of the next booming thing, also make sure you are not getting into next-to-next booming thing. Timing the next boom is also important, because your company might die down before the boom comes. If the next boom is known to everybody, it is not the next boom.
2. Never think of excessive marketing ideas.
People come up with ideas like web-portals/ craig-list / social networking sites, the problem with such ideas is that people should start using your website. People will never start using your website, until it is not used by a lot many other people. You need to excessively market your site first to just get it started. Once, it is started, people will build it up.
3. Always think of ideas for corporate rather than individuals.
When you think around individual, individual will never pay for 10% efficiency. If you are targeting individuals, you should first become a big enough brand. Never think about targeting individuals when you are a startup. Corporates are ready to pay for even 1% efficiency and they don't care much even if you are a startup. Corporates are also hesitant of a startup, so don't expect advance payments.
4. Cashflow should start coming soon.
In case of product companies, it takes 1-2 years for first taste of money. These sort of ideas die down early, because of lack of our patience. Two years is a long enough period to get depressed. However tiny, cash should keep coming at specific intervals, they act as moral-boosters. Your first 10,000 in your own enterprise will give you more happiness than your first billion.
5. Never think of a labor intensive business idea.
However great you are at Human resources, dealing with labor class is the last thing you can do. Especially when you think about your business idea sitting in air-conditioned offices or sessions at a pub or a coffee joint. You will know the ground realities of labor intensive ideas only after starting it. Most of them have been failures.
People will tell you to give it a shot. But think before giving it a shot, it might not turn than hot.
Here are some points for you to learn, when you think about startups.
1. Never be where majority is.
If everybody is doing something, its not a great thing to do. When you follow majority you will always loose, or you have to put too much fight to win. The competition will be intense, since you have been in a cushy job, you have least animal instincts to survive. The person you are competing with, does not have anything else to do for his survival, he will be a savage person.
Always think of the next booming thing, also make sure you are not getting into next-to-next booming thing. Timing the next boom is also important, because your company might die down before the boom comes. If the next boom is known to everybody, it is not the next boom.
2. Never think of excessive marketing ideas.
People come up with ideas like web-portals/ craig-list / social networking sites, the problem with such ideas is that people should start using your website. People will never start using your website, until it is not used by a lot many other people. You need to excessively market your site first to just get it started. Once, it is started, people will build it up.
3. Always think of ideas for corporate rather than individuals.
When you think around individual, individual will never pay for 10% efficiency. If you are targeting individuals, you should first become a big enough brand. Never think about targeting individuals when you are a startup. Corporates are ready to pay for even 1% efficiency and they don't care much even if you are a startup. Corporates are also hesitant of a startup, so don't expect advance payments.
4. Cashflow should start coming soon.
In case of product companies, it takes 1-2 years for first taste of money. These sort of ideas die down early, because of lack of our patience. Two years is a long enough period to get depressed. However tiny, cash should keep coming at specific intervals, they act as moral-boosters. Your first 10,000 in your own enterprise will give you more happiness than your first billion.
5. Never think of a labor intensive business idea.
However great you are at Human resources, dealing with labor class is the last thing you can do. Especially when you think about your business idea sitting in air-conditioned offices or sessions at a pub or a coffee joint. You will know the ground realities of labor intensive ideas only after starting it. Most of them have been failures.
People will tell you to give it a shot. But think before giving it a shot, it might not turn than hot.
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